I focus on the strategic, economic and business implications of defense spending as the Chief Operating Officer of the non-profit Lexington Institute and Chief Executive Officer of Source Associates. Prior to holding my present positions, I was Deputy Director of the Security Studies Program at Georgetown University and taught graduate-level courses in strategy, technology and media affairs at Georgetown. I have also taught at Harvard University's Kennedy School of Government. I hold doctoral and masters degrees in government from Georgetown University and a bachelor of science degree in political science from Northeastern University. Disclosure: The Lexington Institute receives funding from many of the nation’s leading defense contractors, including Boeing, Lockheed Martin, Raytheon and United Technologies.

'One Boeing:' Aero Giant Poised For Record Results

A 787 Dreamliner passenger jet is tested above the Boeing factory at Paine Field in Everett, Washington state on March 20, 2011. (Image credit: AFP/Getty Images via @daylife)

The future isn’t what it used to be for the Boeing Company. It’s better — better than at any other time in the company’s history, thanks to an eight-year crusade by Chairman & CEO Jim McNerney to meld the fractured operation he inherited into a truly integrated enterprise.

Last week I spent two days talking to Boeing executives in Washington State and California where most of the company’s employees are concentrated, and I came away deeply impressed with how Boeing’s behavior has changed. Gone was the longstanding disdain of engineers for politics in the nation’s capital. Gone too was the friction generated by legacy cultures that couldn’t forget old rivalries.

What I found instead was “One Boeing” — the phrase employees use to describe an enterprise in which everybody is on the same team, and working hard to keep the business way ahead of its competitors. The company that CEO McNerney took over in 2005 on the heels of two failed predecessors was a fractious confederation of old Boeing, McDonnell Douglas, Rockwell International and Hughes Electronics employees full of redundant facilities and divided loyalties. Earnings were uneven and core franchises were at risk. Repeated scandals had damaged its reputation at home and abroad.

Today’s Boeing is a very different place. Operations have been streamlined, facilities have been rationalized, cultures have been unified. And it shows: unlike in past recessions when results plummeted to such depths that three-quarters of Boeing’s Seattle workforce had to be laid off, the sub-prime crisis barely dented company results, which have bounced back after a single bad year (2009) to strong and sustained profitability. ValueLine predicts company revenues will rise 17% this year to $81 billion, while earnings per share will be $4.75 — only the third time in the last dozen years they have gotten that high. It projects EPS continuing up to $7.25 in 2015-17 as sales approach $100 billion.

That’s pretty heady stuff, and investors aren’t quite sure they believe it. The share price has struggled despite a steady stream of good news, with attention now focused on potential cuts in Pentagon spending. However, if you track the trends in Boeing’s key businesses, it isn’t hard to find reasons for optimism. The company is outperforming commercial-transport rival Airbus on product quality and appeal, despite the pricing advantage the European company gets from government subsidies. And on the defense side, a new generation of managers has turned around Boeing’s military satellite and aircraft operations, delivering 40% of corporate revenues and returns this year despite the surge in commercial-transport orders.

I won’t attempt to analyze Boeing’s finances here since every aerospace analyst in the business has already beaten me to the punch. Instead, I’d like to make note of a few features I’ve noticed at Boeing outside the boundaries of traditional analysis that signal a strong outlook for the company. These are the sorts of things that are hard to quantify, and yet often make the difference between success and failure in an enterprise.

The first feature is the aforementioned focusing of Boeing internal culture on teamwork and cooperation, values that seemed to be on the back burner for a while after the company bought several big military competitors between 1996 and 2000. Boeing leaders soon discovered that you can’t just bolt on an alien culture to a preexisting enterprise and expect good results, even if the newcomers are genuinely world class. CEO McNerney has devoted much of his tenure at Boeing to fashioning an integrated corporate culture out of the various pieces, and it is only recently that the company has arrived at a point where it can fully leverage all of its legacy skills and franchises into the marketplace.

A second feature is the company’s emphasis on product quality and support in its commercial operations. People who just track market share in the commercial-transport sector miss a lot of what’s going on there, especially given the distorting effect of European subsidies on orders. For instance, the single-aisle Airbus A320 still has not managed to match the reliability of the Boeing 737 Classic — even though the Classic began being replaced by the more reliable 737 Next Generation 20 years ago. Airbus’ super-jumbo A380 jetliner is currently undergoing the kinds of repairs that are almost never needed on new transports due to design errors. Let’s not even discuss the design issues contributing to the loss of an Air France A330 with all on board in 2009. The simple truth is Boeing builds better planes, and then supports them better once they are fielded.

A third feature is the peculiar synergy between Boeing’s commercial and military businesses. That synergy derives most importantly from the fact that demand in commercial and military aerospace markets tends to vary inversely, so that it is strengthening in one segment as it is weakening in the other. Having a substantial presence in both market segments thus has allowed Boeing to smooth out cyclical revenue and return streams in each. Beyond that, though, Boeing has demonstrated throughout its history an ability to apply commercial technology to military markets and military technology to commercial markets. The latest installment in this story is the versatile P-8A patrol plane developed for the Navy from the 737 airframe, and the high-capacity Wideband Global Satcom system developed for the Air Force from commercial satellite technology.

A fourth feature of the Boeing enterprise that has appeared more recently is an enhanced awareness of political processes. There was a time not so long ago when Boeing executives hated to get involved in politics — so much so that some of them even refused to visit the nation’s capital. Back then, Boeing’s Washington office was a lonely and underpowered place. But the aversion to politics began to change with the expansion of Boeing’s defense operations in the 1990s and the growing recognition that Airbus subsidies were enabling the European company to win market share unfairly. So Boeing leaders have become players in the political process, and now have a first-rate Washington office that interacts at all levels with regulators and politicians — usually winning on key issues such as trade-treaty enforcement and export credits.

A final feature that is not new but a key competitive discriminator is Boeing’s extraordinary talent for technological innovation — one of the few things about the company that CEO McNerney has not changed. The same company that introduced the first pressurized cabin transport in 1938, the first successful jetliner in 1958, and the first jumbojet in 1968 continues to set the standard for the aerospace industry today with the 787 airliner. The 787 uses more high-strength, low-weight composite material than any other airliner in history, and Boeing’s rivals are unlikely to match its performance for a long time to come. Similar innovations are emerging from Boeing’s satellite factory, the largest in the world, in Los Angeles and its Phantom Works aircraft research facility in St. Louis. For all the changes of recent years, Boeing remains grounded in the aerospace industry’s strongest engineering culture.

McNerney has surrounded himself with a management team capable of fully leveraging Boeing’s advantages in the marketplace — managers like outgoing commercial-transport head Jim Albaugh and defense-systems head Dennis Muilenburg who have transformed the enterprise. The biggest challenges the company now faces require the cooperation of a political system willing to fend off the unfair trade practices of foreign competitors. But as far as Boeing’s internal culture and operations are concerned, they’re at peak performance. There are other companies as well positioned in the marketplace as Boeing, like Apple. But Apple isn’t likely to maintains its lead by exporting manufactured products from America the way Boeing does, and something tells me it won’t look anywhere near as impressive as Boeing does nearly a century after its founding.

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